The relationship between gender diversity and corporate profitability : the top 100 companies on the JSE Ltd

Abstract:

Although there has been some improvement over the last decade, the representation of
women on corporate boards in many countries, including South Africa, is still alarmingly
low. In the quest for gender equality in top corporate ranks and for better corporate
governance, legislators and institutional investors have both called for greater diversity on
corporate boards. This study determines whether the desired increase in gender diversity on
boards, measured as the proportion of women on the board, is linked to greater corporate
profitability, in an attempt to establish if there is any justification for appointing women to
the board on the grounds of firm financial profitability.
The study uses the Top 100 companies listed on the JSE to examine the nature of the
relationship between board gender diversity and corporate profitability, for the period 2004 to
2008. Findings from correlation and regression analyses both portray a positive association
between gender diversity in the boardroom and corporate profitability, but a negative
association for gender diversity in the executive suite. Industry comparative analysis also
shows that, on average, companies with one or more female directors outperform other
companies on all three measures of profitability: return on assets, return on equity, and return
on sales, whereas companies with one or more female executives show lower average
profitability. Therefore, the study can advocate the appointment and inclusion of women on
corporate boards from a financial or company profitability perspective, but it cannot do the
same for female executives.
Key words
Gender diversity, corporate profitability, gender equality, corporate governance, board of
directors